In June, the U.S. Supreme Court, in U.S. v. Windsor, struck down Section 3 of the federal Defense of Marriage Act as unconstitutional. Yesterday, in response to the Windsor opinion, the U.S. Department of the Treasury and the Internal Revenue Service ruled, effective September 16, 2013, that recognition for federal tax purposes, including income, estate and gift taxes, will be extended to same-sex spouses legally married in any jurisdiction, regardless of the law of the state in which the couple resides.1 Accordingly, a “state of celebration” approach, which should be easier for employers to implement for plan administration purposes, as opposed to a “state of residence” approach, was adopted for the purpose of determining the status of same-sex spouses for purposes of the Internal Revenue Code.
Among other things, the ruling allows employers to cease withholding federal income taxes on health plan premiums for same-sex spouses and requires employers to extend certain statutory rights and protections applicable to tax-qualified retirement plans to same-sex spouses. For additional discussion of health and retirement plan considerations related to same-sex spouses, please refer to our recent client alert, U.S. Supreme Court Strikes Down Section 3 of DOMA: Key Employee Benefit Plan Considerations.
The ruling confirms that registered domestic partnerships, civil unions and other similar forms of formal relationships are not marriages for federal tax purposes. The ruling permits, but does not require, same-sex spouses retroactively to amend their federal tax returns for open tax years (generally, three years from the date the return was filed), including to request a refund or credit for overpayments of employment and income taxes related to same-sex spousal coverage under an employer-provided health or welfare plan. The ruling also states that the U.S. Department of the Treasury and the Internal Revenue Service expect to issue additional guidance on the retroactive application of the Windsor opinion on employee benefit plans.
This summary does not contain a complete discussion of the ruling or the Windsor case or their implications for employee benefit plans. Employers should carefully review their plan documents and administrative practices for their employee benefit plans to determine the required and optional changes needed in response to the ruling and the Windsor decision.